Federal Commissioner of Taxation v. Totalisator Administration Board of Queensland

Judges: Thomas J

Derrington J
Ambrose J

Court:
Supreme Court of Queensland (Full Court)

Judgment date: Judgment handed down 4 September 1989.

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Derrington J.

The facts and issues in this matter are set out in the judgment of Thomas J. which I have had the advantage of reading.

Although reference was made in argument to the short title of the Act with particular emphasis on the word ``Sales'', this is of little assistance and should be avoided:
Vacher & Sons Ltd. v. London Society of Compositors (1913) A.C. 107 at pp. 128-129 . The long title calls it: ``An Act relating to the Imposition, Assessment and Collection of a Tax upon the Sale Value of Goods manufactured in Australia and sold by the Manufacturer, or applied to his own use, and for other purposes''. While it is impermissible to use the long title of an Act to defeat the clear words of a section ( In
the Estate of Groos (1904) P. 269 ), it may be referred to for the purpose of resolving ambiguity and uncertainty:
Birch v. Allen (1942) 65 C.L.R. 621 at p. 625 . Unfortunately however the long title in this case merely replicates the relevant ambiguity.

It is better to turn immediately to the provisions of sec. 17(1) and (2), which are the

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central provisions of the Act and contain the essence of this problem. They read:

``17(1) [Sales tax levied on sale value] Subject to, and in accordance with, the provisions of this Act, the sales tax imposed by the Sales Tax Act (No. 1) 1930 shall be levied and paid upon the sale value of goods manufactured in Australia by a taxpayer and sold by him or treated by him as stock for sale by retail or applied to his own use.

17(1A) [Manufactured computer programs applied to own use] The reference in subsection (1) to goods manufactured in Australia by a taxpayer and applied to the taxpayer's own use does not include a reference to goods that would be taken to be manufactured in Australia by the taxpayer by reason only of paragraph (e) of the definition of `Manufacture' in subsection 3(1) and applied by the taxpayer to the taxpayer's own use.

17(2) [Manufactured goods applied to own use] Subject to subsection (1A), the reference in subsection (1) to goods manufactured in Australia by a taxpayer and applied to his own use shall be read as a reference -

• (a) to goods manufactured in Australia by a manufacturer in the course of carrying on a business and applied to his own use, whether for the purposes of that business or for any other purpose and whether or not the goods are of a class manufactured by the manufacturer for sale;...''

First it should be understood that contrary to the argument of the Commissioner, the terms of subsec. (2)(a) expressly operate in total substitution for the words ``goods manufactured in Australia by a taxpayer and... applied to his own use'' in subsec. (1) so that the latter cannot be construed apart from the former.

The issue in this appeal is whether the words in subsec. (2)(a), ``by a manufacturer'', should be read in the context in which they appear as requiring that the manufacturer should be in the business of manufacturing, that is, that he usually sells the products which he manufactures, but in the circumstances referred to retains some for his own use; or whether it also extends to a manufacturer of products who is not in the business of manufacturing, that is, he does not normally sell them but manufactures them solely for his own use.

The argument for the Commissioner that one who manufactures products, as the respondent does in this case, is a manufacturer is of course good as far as it goes. But the question is whether the manufacturer required by sec. 17 to pay this tax must carry on the business of manufacturing before becoming liable. The Commissioner agrees that it is necessary that he be carrying on a business, so that it is clear that it is not enough that a person be a manufacturer simply because he manufactures products. Consequently no a priori presumption in favour of the Commissioner's argument is established by that fact, and the gravamen of the issue is perhaps best expressed by posing the question: A manufacturer is required to be carrying on business before he is liable to sales tax: must that be the business of manufacturing? It is perhaps a small point but it is desirable that in circumstances such as this an issue should be read in its proper context.

Most of the cases cited have little or no relevance to these issues. The line of cases represented by
Adams v. Rau (1931) 46 C.L.R. 572 and
F.C. of T. v. Riley (1935) 53 C.L.R. 69 are cases where the product passed to a buyer and because of the peculiar nature of the article the only question was whether it was manufactured within the meaning of that term where it appears in sec. 17(1). Where the products were not exigible to tax they were not commodities and so they were not manufactured; and this was the point on which these cases turned. It had nothing to do with the position as in this case where the process undoubtedly consists of manufacture of the product. This therefore has no relevance to the present question and the type of case where it was found that there was no such manufacturing should not be regarded as an exception to any principle relevant to this case.

In
M.R. Hornibrook Pty. Ltd. v. F.C. of T. (1939) 62 C.L.R. 272 the manufactured products were deemed pursuant to sec. 3(4) to have been sold to the buyer for whom the manufacturer built the bridge into which he incorporated the manufactured products: Latham and Rich JJ. Rich J. however went further and with Starke J. found also that the goods were exigible to tax because they were manufactured in Australia by a taxpayer in the

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course of carrying on his business and were applied to his own use. However, the statement of facts (p. 273) shows clearly that Hornibrook manufactured ironwork and goods for use in contracts undertaken, as well as manufacturing plant for its own use. In those circumstances it was obviously carrying on a business of manufacturing and it is not surprising that the question in issue here was not adverted to either in argument or in the judgments. This is also probably the reason why this authority did not receive any attention in
F.C. of T. v. Nimrod Theatre Company Ltd. 85 ATC 4092 ; (1984) 5 F.C.R. 269 , which is discussed below. For these reasons, Hornibrook is distinguishable, and the discussion of apparently pertinent issues cannot be translated to the present case because that discussion proceeded upon an entirely different understanding.

The Commissioner placed considerable emphasis upon the decision in
D.F.C. of T. v. Taubmans (N.S.W.) Pty. Ltd. (1966) 115 C.L.R. 570 where a paint sales tax upon colour charts which it had purchased from a printer, who was of course a manufacturer, but which it applied exclusively to its own use as a wholesaler of paint. It is impossible to draw from this decision any principle relevant to the present question because, as the colour charts had been produced by the wholesaler as the person applying them to his own use. The specific issue was whether the latter was applying them to his own use. The question was totally distinct from that in the present case and the discussion explaining the decision is of no assistance whatsoever in this matter.

In Nimrod, Fox J. applied the principle in Rau and Riley and found that the production of its own sets by a manufacture, so that the company was not a manufacture. With this I respectfully agree. In accordance with the above analysis of those cases, this distinguishes Nimrod from the present case.

Although he appears to have been of the same view, McGregor J. was more wide-ranging in his reasons for judgment, and it is desirable to discuss them in detail because they purport to discuss issues relevant to this case. Wilcox J. agreed with both Fox and McGregor JJ. McGregor J. found that because the definition of ``manufacturer'' in sec. 3 provides in part:``...A person who engages... in the manufacture of goods...'', and the word ``engages'' implies no mere sporadic or passing or isolated activity, it did not apply to the Nimrod Company. Of course, that is not the position in the present case where there is substantial and regular production of the printed goods. Such a distinction may also be made in respect of his observation that sec. 3(7) of the Act would be inappropriate to that company, and that this was a reason why it should not be regarded as a manufacturer.

Further he referred to certain features of the Act relating to registration and ancillary activities which are appropriate to manufacturers carrying on business as such but not appropriate to a manufacturer who produces solely for his own consumption; and from this he drew an inference that the latter cannot be regarded as manufacturers within the meaning of the term. While this may be logical in certain circumstances, however where there are general provisions covering a variety of instances, it may well be that no such inference can be drawn because some of them may not apply to one of the possible class, particularly if it is of minor significance. It may be that such a provision simply does not operate in those circumstances. That is the case here.

Much more compelling in the present circumstances is his reference to sec. 13 which imposes penal sanction upon ``any person carrying on business as a manufacturer'' who fails to register under sec. 11, which refers simply to ``a person who is a manufacturer''. The only reasonable conclusion from reading these together is that sec. 11 applies only to a person who carries on a business as a manufacturer. (See also Form A in the Second Schedule to the Regulations.) That section is of considerable significance in the framework of the scheme of collection of the tax and should be regarded as having universal application. This implies that the provisions imposing the tax have similar application and consequently similar limitations. This is fortified by a reference in sec. 16, as it then appeared, to the occasion of a manufacturer's ceasing ``to carry on the business to which the certificate relates'', the certificate being that which was issued under the system of registration.

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In his reasons for judgment, McGregor J. applied a citation from Riley in his discussion as to whether the Nimrod Company was carrying on the business of manufacturing. With this application I respectfully cannot agree for the reasons stated above, although of course Nimrod could not have been carrying on the business of manufacturing because under the principle in Rau and Riley its production of its sets did not constitute manufacturing, as Fox J. found.

Upon his reasoning, McGregor J. came to the double conclusion expressed in one sequential statement that ``sec. 17 is to be read as requiring sales tax to be levied on and paid so far as the manufacturer is concerned by persons engaged in the business of manufacturing, and not entities who are engaged in a different business, for example such as Nimrod - accepting for present purposes that Nimrod is engaged in a business - but as part of such occupation produces goods for its own use in that occupation''. Of course it was necessary to this view only that Nimrod did not manufacture its sets within the meaning of the term ``manufacture'', and therefore it was unnecessary to decide whether the tax was payable only where there was a business of manufacturing. However, both views must command respect and for this reason must be properly understood.

He went on to suggest that the concept that a producer of plays should thus be regarded as engaged in manufacturing so as to be liable to pay sales tax on its sets is incongruous to the point of being bizarre. This view is, with respect, completely justified on the basis that it was not a manufacturer at all. It might not attract such emphasis if as here the production constituted manufacturing, and so the effect which learned counsel for the respondent sought to achieve by its employment must be somewhat attenuated.

The respondent presented an argument that should be discountenanced lest it be regarded as having influence upon this decision. It argued that before its products could be subject to tax it was necessary that they should be saleable because sec. 17(1) refers to a tax ``paid upon the sale value of goods''. It was argued that the products in the present case were uniquely for the purpose of the respondent itself and would have only scrap value if sold to another, and that the Act could not reasonably be construed as having application to that state of affairs. To this there is a combination of answers.

First a number of the items are not shown to be uniquely valuable to the respondent. These include petty cash vouchers, general message forms and the like. Secondly at the relevant time the tax that was payable in respect of manufactures retained by the manufacturer for his own use was assessed upon the price which the manufacturer would pay if he were to purchase them elsewhere (sec. 18(3)). This demonstrates that the suggested inference from this ``scrap value'' concept is invalid because that is not the way upon which tax is assessed, and it is contrary to the view expressed in Hornibrook at p. 285. Thirdly if the argument were correct, it would have application to a manufacturer who carries on business as such and manufactures one of his products in a way which is uniquely valuable to himself. For example, if a manufacturer of machinery were to manufacture a machinery were to manufacture a machine of unique value for his own purpose in that business, on the respondent's argument he would be entitled to avoid tax if he could show that because of its unique value to him the machinery would not be saleable other than as scrap. This is manifestly contrary to the clear words of the Act. For these reasons this argument is not tenable in the present case. In principle it is irrelevant to this view that all of the respondent's manufactures were used solely for its own purposes.

An argument presented on behalf of the Commissioner pointed to a suggested injustice if the respondent's argument were to prevail for it would mean that the respondent would not pay tax upon these products but that a similar organisation which purchased its similar requirements from a manufacturer would pay the tax. The same might be said of the difference as to liability for tax between the respondent and a professional printer who kept some of his products for his own use. However, there is nothing unreasonable or illogical about this in respect of sales tax legislation. If it is the policy of the Act to tax legislation. If it is the policy of the Act to tax the products of manufacturing business which are either sold or instead of being sold are kept for the manufacturer's own purposes, then there is nothing illogical in the result appealed from for it is consistent with principle that a party is entitled to arrange his affairs honestly for the purpose of avoidance of tax. Nor is there

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anything illogical about the primary premise, for it is quite consistent that legislation imposing a sales tax should be considered to have a policy having relevant limitations of the nature posited.

After this discussion of the authorities and the various arguments, it remains only to look at the legislation itself. The expression in sec. 17(2)(a), ``manufactured... by a manufacturer in the course of carrying on a business'' if read as a whole and not artificially divided into components tends to suggest that the business referred to should be a manufacturing business. This is supported by the reference in sec. 13 to ``any person carrying on business as a manufacturer'' which, as it has been demonstrated above, colours sec. 11 which in turn possesses a degree of essentiality to the scheme of the Act. This is confirmed by the former sec. 16 which contains a similar reference.

Some further support for this view might be derived by the rule of construction for the avoidance of tautology where possible in its application to the important expression, ``manufactured... by a manufacturer'' with the phrase immediately following, namely, ``in the course of carrying on a business''. While this argument as to tautology is not strong, it is more correctly viewed as a simple form of expression where the second reference to the concept of manufacturing is intended as a qualifying reference to the associated passage relating to the carrying on of a business, this result being obtained through the emphasis achieved by repetition.

There is an argument of some slight weight to the contrary in respect of inferences that might be drawn from the recently inserted sec. 17(1A), but this is far from sufficient to counter the weight of those factors which support the limitation of the relevant business to one of manufacturing.

For these reasons the appeal should be dismissed with costs.